How to do a Company Voluntary Arrangement

COMPANY DEBT ANALYSER

How to do a Company Voluntary Arrangement

If your company is under serious pressure, but should the historic debt be removed, the business remains viable, then a Company Voluntary Arrangement (CVA) could be the answer.

A company voluntary arrangement is a vehicle which allows the company to offer a settlement to its creditors. The company pays back a percentage of its debt over a fixed period – often 3-5 years. The creditors agree to accept the reduced payments in full settlement of the debt that they are owed.

There are significant advantages for both the company and creditors if a company voluntary arrangement can be agreed. The company structure and employees are maintained. This means important resources are not lost as they might be if the business was put into administration or went through a pre-pack liquidation. The company is also left in a much better trading position as the burden of its legacy debts is lifted. Creditors have the possibility of receiving some return on what they are owed which they would almost certainly loose if the business was wound up. They also have the opportunity of continuing to trade with the business into the future.

There are a number of steps that will need to be carried out if you feel that a company voluntary arrangement is the correct course of action for your business:

  • The directors of the company must first review the current business situation with a corporate insolvency expert. The insolvency expert will want to establish that the company is insolvent and that a CVA is the most appropriate option. If in agreement with the plan, the directors must approve the action with a board resolution.
  • An Insolvency Practitioner is introduced to act as a nominee for the CVA. The insolvency practitioner will have the responsibility to preparing the CVA proposal. This will include business forecasts showing how the payment proposal to creditors will be sustained.
  • If the company’s bank is a significant creditor (which is normally the case), the Insolvency Practitioner will have to meet with the bank to gain commitment that the company voluntary arrangement will be approved and that they will continue to support the company with banking facilities through the arrangement.
  • The final version of the CVA proposal and nominee’s report is filed at court and distributed to all creditors. A meeting of creditors will be called a minimum of 14 days (normally 21) after the issue of the proposal documentation.
  • The CVA is accepted at the creditors meeting only if 75% of the value of creditors who vote accept the proposal. The acceptance of 50% of the company’s shareholders is also required.

Once a company voluntary arrangement has been accepted, the directors have their work cut out to make sure that the company flourishes and the terms of the arrangement are maintained. Very often it is advisable to consider a management change which will be able to bring new ideas and energy to the company. This may not necessarily mean a significant cull of the current executives. However, at the very least a new non executive director should be introduced. The business may also require new capital to invest in new business development projects. The company insolvency expert will be able to advise about this.

The fees associated with carrying out a company voluntary arrangement will normally consist of an initial fee charged by the company insolvency expert. Additional Nominee and Supervisors fees will be charged by the insolvency practitioner. However, these will generally be taken from the ongoing payments that the company makes into the CVA. As such, the company will not have to pay these additional fees over and above what it is already paying to the CVA.

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